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Short term drop, but 3.4% growth forecast for 2014

14 January 2014

Construction output fell by 4% in November, fuelled largely by a drop in private new commercial work, new figures from the Office of National Statistics have revealed. However, a second report, published this week by the Construction Products Association (CPA) predicts optimistic longer term prospects for construction with expected growth of 3.4% in 2014 and 5.2% in 2015.

The CPA forecasts that growth in private house building, infrastructure work and commercial activity will drive recovery in the industry over the next four years, with further increases of 4.4% in 2016 and 3.8% in 2017.

According to the ONS figures, output fell by an estimated £395m in November, compared to October 2013, due to an estimated 3.9% drop in new work, equivalent to £240m, and a 4.2% drop in repair & maintenance work, worth £155m.

The month-on-month decline was blamed largely on a 7.1% decrease in private new commercial work. In addition, there was a 3.2% fall in private new housing and a 4.8% fall in infrastructure work.

Reasons to be cheerful: other key figures in the CPA forecast

  • Infrastructure sector to grow 6.8% in 2014, 9.5% in 2015, 11% in 2016, and 7.6% in 2017
  • Commercial sector to grow 2.4% in 2014, 6% in 2015, 4.5% in 2016, and 4.7% in 2017
  • Retail subsector output growth of 2% in 2014, and 5% rises expected in 2016 and 2017
  • Private housing output to grow 10% in 2014 and 2015, before falling to 5% in 2016 and 2% in 2017 in line with the end of government measures such as Help to Buy
  • Public housing starts to rise 2% in 2014 and 2015
  • Private housing repair, maintenance and improvement to grow 3.5% in 2014, then 4% per year until 2017
  • Public non-housing, including education and health, to contract 0.6% this year, then grow by 0.8% in 2015, 2.2% in 2016; and 2.7% in 2017

Non-housing repair and maintenance, the largest sub-sector within repair and maintenance, fell by 3.9%, or £75m, while housing repair & maintenance fell by 4.4%, or £80m.

On a more positive note, comparing the three months from September to November with the previous three months, June to August, construction output grew by 0.7%, thanks to a 0.8% increase in new work and 0.6% growth in repair and maintenance.

The disappointing month-on-month figures are a reminder that the industry’s recovery could be slow, said Michael Dall, lead economist at construction intelligence specialist Barbour ABI: “The figures are disappointing for the industry, which has been enjoying a period of optimism, generated by months of reports of strong performance.”

He added: “A dip in the figures was likely to come – the construction industry is volatile and the period of exponential growth we’ve seen of late was unlikely to continue unblemished. However, looking at the bigger picture, we’re still seeing longer-term growth, with November’s figures 2.2% up on this time last year, the sixth consecutive month we’ve seen the year-on-year numbers increase.”

Also commenting on the ONS report, Simon Rawlinson, head of strategic research and insight at EC Harris, said: “Despite the lower level of activity recorded in November, the medium term rate of growth has been sustained. Given talk about shortages of labour and material, a steady, sustained rate of growth is what the industry needs, so let’s not take one month’s strong or weak data out of context ... Today’s data could have an impact on the fourth quarter GDP, which may not end up
being quite as sparkling as some analysts have suggested.”

Stephen Gifford, director for economics at CBI, added: “Although these figures are disappointing, they only reflect one month’s performance and there is a growing sense among firms that the recovery is taking hold. Jobs are now being created fairly consistently across the country and, for the first time since the start of the recession, most firms intend to increase their workforce.

“However, as growth picks up, getting more firms investing and exporting is crucial to ensuring a well-balanced, broad-based and sustainable recovery.”

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